“US CPI will be a key focus. Our forecast is in line with the market consensus,” analysts at TD Securities (TDS) noted in their latest report. The US is set to release the December month Consumer Price Index (CPI) on Wednesday at 1330 GMT.

Key quotes

“That said, we think the market's reaction function is asymmetric. That is, with a hawkish Fed well-priced, a softer CPI read could do more to tactically undermine the USD and support risk.”

“Tactically, we see higher beta currencies like CAD benefiting in that scenario, but we think the funders still face an uphill battle early this year. We are keenly watching EURUSD downtrend resistance near 1.14.”

“The market will pay close attention to the CPI report and ongoing Fed speak, but Chair Powell's testimony has continued to suggest that the Fed will remain more aggressive on the timing and pace of hikes as well as runoff.”

“While Powell said the Fed will remain "humble and nimble", we now expect the first Fed rate hike in March and look for balance sheet runoff to begin in September.”